Presentation

Operator

Thank you for standing by, and welcome to motorsports game Quarter 2024 earnings call. As a reminder, today's conference is being recorded.
I would now like to turn the conference over to Ben for us at Turner from motor sport games. Please go ahead.

Thank you, and welcome to NEXT book gains First Quarter 2024 Earnings Conference Call and Webcast. On today's call is multiple games, Chief Executive Officer, Stephen Hoge, and Interim Chief Financial Officer, and Stan. Exactly By now, everyone should have access to the company's first quarter 2024 earnings press release filed today after market close. This is available on the Investor Relations section of virtual games website at w. w. w. dot motorsport games.com.
During the course of this call, management may make forward-looking statements within the meaning of US federal securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Except as required by law, the Company undertakes no obligation to update any forward-looking statement made on this call or to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to today's press release and Company's filings with the SEC, including its most recent quarterly report on Form 10 Q for the quarter ended March 31st, 2024. For a detailed discussion on certain risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statement made today.
In today's conference call, we will refer to certain non-GAAP financial measures such as adjusted EBITDA as we discuss the first quarter 2024 financial results. You'll find a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures as well as other related disclosures in the press release issued earlier today.
And now I'd like to turn the call to Stephen Holt, Chief Executive Officer of Mexico games. Stephen?

Thank you, everyone, for joining this conference call today. I'm very pleased to be here and to talk to you about our achievements in Q1 2024. During the last call, I spoke about the release of the month ultimate in February, but we can now share greater insight into the financial and business impact of this important product release. Thanks to the tireless work of the team at Studio 3.7. And with the help of our partners that the ACO the organization behind the 24 hours of Lamont, I'm pleased to announce that public reception to and that the sales of the game exceeded our business forecast. Given the turnaround time from project start to release was less than 12 months, we can be very happy with the initial positive results to our first internally developed game launch with a difficult release of our Masco commission title over two years ago. A great deal has changed throughout the Company since my return in April of last year, and I'm incredibly proud of the energy and determination of everyone within the business, putting together to deliver and continue expansion of this great game. We have proven and we have what it takes to bring a quality product to market at a great reception.
Much of this is down to a deep understanding of the technology employed level among ultimate technology we own as well as a vibrancy and determination across the organization to do what we are laser focused on delivering innovative entertainment.
This was an important milestone for our business and sets us up for the future. Lumen ultimate is based on a licensed series featuring desirable racing pedigree sports cars series undergoing a timely Renaissance with incredible manufacturing entries into the real world sport automotive giants such as Ferrari, Porsche and Cadillac and competing at the top end of the sports, all of whom have been incredibly supportive June, the creation of this game. It is our belief that this game now offers a potential springboard from which to launch future downloadable content or DLC, as well as development of a console port with the right partner to address what we know to be a much larger game audience for the title with the right focus and ongoing development, we believe we could have a valuable gaming franchise ahead of us, one that leverages the technology services and know-how we have within our business development of lumen. Ultimate continues the pace. We are crafting a game into a unique and exciting proposition to a wide range of players in June this year, the month of the favorable to 24 hours of Le Monde race. We anticipate a unique marketing window will be further amplified by the visibility the ACO are expected to provide with racing fans around the world watching the greatest endurance events. We expect our game will feature throughout the week-long Festival of racing. At the same time, we plan to update the game with a free uptake. So below the line between Solo and online play in a world of infinite choice and countless apps, games and entertainment services vying for consumer attention. We intend to update them on maintenance with the cooperative feature not typically found within racing games. Our cohort features designed to enable up to three friends as many drivers as there are 13 realized for the month to play two chapters of a race taking tends to drive the car in an ever-evolving story against a teams. We believe this feature will enable a wider section of racing games to enjoy the unique and payment of insurance agency without the burden of being online at the same time with their friends. We all have busy lives and Lamont ultimate will fit into that so that you can play when you want and still be part of the conversation with friends. Additionally, we are investigating and developing a number of concepts to enhance our ecosystem through the use of AI or artificial intelligence. Once the technology sector is awash with stories of cost saving opportunities through the use of AI. We already run an efficient operation. And as such, we have been exploring how a I might benefit of storytelling and representation of the people within the sport we recreate today. The games industry uses basic A. parameters and decision making to drive cars around the track and avoid obstacles. But we are working on bringing the virtual drivers up to a whole new level of realism enjoys its complete skills and dynamic decision-making abilities that will bring players closer to real life than ever before. Players will find themselves more interest in the story that runs deep through motorsport, and they will find themselves subject to virtual media attention QAD's and reported on by a reporters and commentators. All of this will be enhanced by our ecosystem, which puts as much focused on the pre and post race as the lease itself. Much of our future development or complementary service business team is built around our vision for accessible yet highly realistic racing experiences, experiences that can be enjoyed with friends players feel part of the racing story we also plan to introduce new content to begin for the current game contains the tracks and cars from the prior season, the centenary of the mine last year we know from our player base. They want to see the game updated to include the changes for the season. We plan on releasing a steady flow of content through the second part of this year. The initial piece of this new content will be free as will other select items. A thank you to the community that has given us great support to purchase fair gain during early access, we expect premium paid content will then be made available shortly thereafter, which we believe will offset the cost of ongoing development and broaden the appeal and uniqueness of our officially licensed title. Furthermore, we are bringing a subscription service to both our Factor two and among alternate products, leveraging our risk control platform, which has over 100,000 registered users and playing within our ecosystem. A gradual ramp of subscriptions is expected as we build the value proposition players looking to get even more entertainment out of this exciting experience, although we believe the free component of the online waste control offering will continue. It is up to us to convince players of the value presented by a subscription service with the gains technologies, online service and our plans for them on virtual one of the biggest recent e-sports events in the world, we believe we finally have the pieces in place to see and derive greater revenues from complementary services built around our core games. Aside from the success of our recent game release, we continue to make progress towards business efficiently and an improvement of our balance sheet. We recently announced the settlement of the previous license dispute liability with ARCTOCA. Tokyo Limited, exclusive promoter of the DTCC. which is the British touring car championships for significantly reduced figure. We also entered into a new licensing deal with them, which we expect will lead to further releases of official PTCC. downloadable content for our Factor two. This deal is beneficial to both parties, and we are grateful to our partners that we put historical changes chip, and we are pleased to be working with. Again, this was a positive step, one of many undertaken over the last several months. Additionally, last week, we sold the assets relating to traction our previous motorsport and racing games community content platform to a third party for $250,000 in total consideration. As previously announced, we had closed its outlet in Q three 2023. And the sale of this asset brings more focus for the Company on creating high-quality leasing gains along with additional working capital. We retain the rights to use the channels for future among virtual e-sports events to ensure that they receive the reach they deserve when award winning competition.
You can.
In the past, I've made a number of references to what we believe to be a somewhat fragmented simulation landscape where established game developers bring products to market, which are being kept current and made more accessible by smaller oftentimes and teams with additional content and services from new cars to trucks, learning aids, news and discussion platforms, promoting a center community and even cost setups, the latter enabling players to focus on driving and less.
So on the engineering element of motorsports, we are now gearing up to provide access to our ecosystem and games to official partnerships, integrating supplies of services and content. We ourselves do not intend to devote resources to building. This should provide a cleaner, more acceptable environment for customers and bring additional revenue into reach. But perhaps more importantly, it will enable us to elevate the experience across our games. Just recently, we signed cockpit up specialist Coach, Dave Academy as a preferred supplier of alternative setups from them on ultimate offer directly from within the game. We expect other service providers to come on board. Once this partnership is fully rolled out in the summer, these partnerships could provide another source of revenue for the business and elevate our ecosystem to be best in class. We're innovators within our space, join forces, much sport games, Studio 3.7 to make sim racing stronger tomorrow in time, we would expect to bring online and marketplace for new content and services that are considered noncompetitive rather additive to our business objectives in the years.
Since I returned to the company to a business, which at times struggled with identity and purpose, we have made tremendous progress. We have strategically repositioned the Company around choosing IT and our best development team, enhanced focus eradicated unnecessary spending and put in place cost control measures all whilst resolving certain outstanding liabilities relating to our prior licenses, we have launched a successful game, a partnership with Amazon arcade and Kindred concepts that results in recurring license revenue for our technology and expertise and believe we have several potential near-term revenue opportunities that are additive to our core focus, which we anticipate coming online over the course of 2024. It has not been easy, but it has been rewarding for us all.
And we feel there is more to come.
Our goal is to be a developer and publisher of highly innovative experiences. We're connected to and in homes by our ecosystem at the heart of which is the rapidly growing voice control service.
Now I would like to invite Stanley Blackley, our Interim Chief Financial Officer, to talk about the financial results for the first quarter of 2024.

Thank you, Stephen, and good evening, everyone. As with the previous earnings calls, I will be offering any forward-looking guidance today. Instead, I will focus on providing an update on our financial results and highlights from the first quarter of 2024. So revenues for the quarter was 3 million, up by 1.3 million or 75.2% when compared to the same period in the prior year. Higher digital game sales were the primary drivers for this increase, primarily as a result of the release of Lumin automated game on PC in February 2024. This was further driven by an increase in revenues earned through the development of simulation platforms for third parties. Net loss for the quarter was 1.7 million, an improvement of 3.6 million when compared to the same period in the prior year. The decrease in net loss was primarily driven by higher gross profit and lower operating expenses required to develop and release additional new games. Consequently, EPS for the quarter was negative 0.60 compared to negative 2.23 for the same period in the prior year, we are reporting an adjusted EBITDA loss of $0.4 million for the first quarter of 2024 compared to an adjusted EBITDA loss of 4.2 million for the same period in the prior year. The improvement in adjusted EBITDA loss at the same as those discussed in respect of the change in net income for the period and comparative quarter as well as a decrease in stock-based compensation compared to the prior year period.
As it relates to liquidity continues to be a key area of focus for the Company. Net cash used in operations for the three months ended March 31st, 2024, was approximately 0.5 million, representing an average monthly net cash burn from operations of $0.3 million, down 1.6 million when compared to the average monthly cash burn of 1.9 million for the three months ended March 31st, 2023. As of March 31st, 2024, the Company had cash and cash equivalents of 1.2 million, which we believe is sufficient to fund our operations over the next year and that additional funding will be required in order to continue operations.
In order to address this liquidity shortfall, we are actively exploring several options, including, but not limited to traditional funding in the form of potential equity and or debt financing arrangements or similar transactions, strategic alternatives for our business, including but not limited to the sale or licensing of our assets in addition to the recent sales of Alaska licenses and traction and further cost reduction and restructuring initiatives.
Thank you all for your time. And now I will turn the call back to Stephen for closing remarks.

Thank you, Stanley, and thank you to those joining us today. We've worked hard over the last 12 months, and the result is an upturn in our Q1 results. We still have some way to go, but I would hope you'd agree. We've turned the page and have positive momentum. We're excited about the remainder of this year and in particular the upcoming the money than in June.
Thank you.

Question and Answer Session

Operator

At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and one. If you would like to ask a question.
We will take our first question from Jason culture with Concord. Your line is open.

Thanks for taking the question and congrats on the strong launch for month Ultimate. I think one question I had on the remarks you gave there in terms of the console opportunity. I'm curious, what does that sort of look like? Where is that in the priority list. Do you currently have the capabilities in-house to sort of develop the console version of this game and what the timeline may look like for eventually?
I cannot launch.

Yes, Stephen, very good question.
I think one of the things that I should be clear in my remarks and earlier are the intent to focus and the development team that we have internally right now in studio, Trina and seven have been the wonderful team that has managed to develop them on ultimate in what I consider to be record time and to really kind of them high quality level.
And that as much of that has come down to the focus that we have slavishly demanded of everybody in the business.
And I think the near-term opportunity around console development is something that I don't think we have to bring internal in its entirety. What I would intend to do and certainly one of the things that we've been discussing with external potential partners is on leveraging some of the resource and the technical know-how that we have internally, but ensure that the heritage is done externally, there are many many partners that we can count can go to in our space right now, they have the ability to bring these products across to console.
So I don't want the expense of managing the entire thing internally.
I think we do it cost effectively and professionally by relying on and utilizing other partners in the industry space and give you some color too.
Yes, answer to your question.

Yes, absolutely. That makes sense. And another thing you touched on in the prepared remarks, but I saw the opportunity around subscriptions. Just hoping you could maybe dive a little bit more into sort of the differences between what sort of is offered in the free risk control currently and what sort of a subscription would look like and how you sort of view that opportunity both within launch ultimate and then sort of obviously, from a broader perspective as well?

Yes, sure. I mean, one of the commitments we made to the home.
The community that are playing Limon smoke right now is that the competitors are price-conscious. I think we've come out of the gates with a very attractive product at a very attractive price point, and that's done wonders for us and certainly So positive community sentiment, one of the things that we're intent on doing is still providing a free gateway into the titles. We are very confident in the experience and entertainment value of them on alternate doesn't make any sense for us to put bricks kind of pay. We will have 100 users. We know that if we start experiencing the momentum, I want to come back for more.
What we're trying to do is ensure that that value proposition is really attractive to users that want to get even more entertainment value from the product.
And one of the things that we're trying to do is and encourage groups of players to compete and participate together that is really important in the recent space where most of the time only one person can win and friends become enemies. We're encouraging groups of friends to play online which is very common in a young system and popular console and PC games today, but not really in the racing space, we're trying to correct that the one of the upsells is if you decide to take one of these subscription tiers and you willing to participate in this kind of recurring opportunity, we are going to amplify the sense of being part of a team, you will have heard me reference in some of the IT systems that we're looking to employ that tell a story around your participation in the race. These things will become available to you if one of the people in the group decides to subscribe.
So we're looking at the bigger resource and pick a pocket of a group rather than necessarily individuals.
So we're looking at very innovative ways of trying to make the subscription a must-have for people that really want to get more from this experience. But we are not making it a requirement to participate and contribute online if that makes sense.

Yes, absolutely. That's very helpful. And then one last question I had is in terms of the overall cost savings. Obviously, we saw a significant year-over-year improvement on the net EBITDA loss. I'm just curious sort of in terms of obviously the 2022 restructuring and then some of the moves you made in the second half of last year, just sort of in terms of the full impact of those savings relative to what we saw in Q1. Is there sort of more further improvement in terms of cost savings from here? Or have we sort of reached a point where the made moves that have already been made are now fully sort of fully reflected in the financial performance, why?

Yes, I think that's what I'm Stanley on. So in the 2022 restructuring program that you mentioned, I think on by the end of 2023. We have fully realized the benefit of that farm. As we disclosed in our Form 10 K, we had on restructuring that impacted on Australian development studios and the unions and employees as well through Q4 of 2023. I think at this point on, you know, for Q1, they're down to a monthly operating cash burn of about $300,000, significantly lower than Q1 of last year. I think at this point is sort of fully realized as the benefits of the restructuring program, but we still continue to. So we'll look at all the ways where we can come in on recycling expenses where it makes sense to do so. And it's feasible without that 100 business Great.

Thanks very much for taking the questions.

Operator

Thank you.
We'll take our next question from Michael Kupinski with NOBLE Capital Markets. Your line is open.

Thank you and congratulations on your quarter and your release.
Stephen, I was wondering if you can review for me the roadmap again for the release of games DLCs and the subscription service in particular, like what would be what quarters would you be able to kind of identify when those will be available?
So on what are the real key is when the first pizza containerized and we're looking to coincide that with the Lamont event in June. So our next month is not far away at all of that for us is the next stepping stone in the progress and the road map of Lumwana ultimate experience?
Well, you've heard me reference it has the 2023 season content and they're understandably our audience is saying, well, we're watching the 24 season. Now we want the product to be as current as possible, especially as their new cars and manufacturers come to us for driver changes and whatnot that people are looking to see reflected and the calendar and the circuits and whatnot. So the first piece of content comes online in June, and that's pretty much on every two or three months. We're looking to launch additional content ideally impact. So there may be new car rising in June. After that, we're looking at new circuits. And then we start to update the content to make it more current to the 24 season with the different categories of cars that are online. So for us, and it's really about trying to conclude this year and ensure that by the end of 24, we have the entirety of the 2024 calendar circuit and the cars incorporated in the product. So that really gives us six months to be rolling this out.

And we think there's a great urgency in that arm because we have the entirety of the 23 things, if not as if we came out of that very, very thin game with very limited content.
There's an enormous amount of content in terms of attraction in the cars and the variety on offer for established flow of new people coming in over time, but June is when it really starts so on we're about five weeks away from this data capture.
And when do you anticipate the subscription service to be launched as a subscription service, I think is a case of from post-Lehman.
We're starting to talk about it now. It tends to be a very sensitive subject in recent space for some odd reason. And for us, this is not really kind of pushing the OEs to spend unnecessarily. We know that as we end the ecosystem and we put enormous resources into building this ecosystem so that we have to gain. We have the online funnel in voice control and we have the services and the features being plugged into that ecosystem. Experience so that you and your friends can really feel as though you're a part of a story, feel like superstars in this, those features come up, you come in at the expense and we're looking for places to invest in next-gen with U.S. business. Subscription is probably I'm being well coming online around July or August this year.
Yes.

And then I know there generally is a bell curve to sales. I was just wondering, can you give us a sense how long the tail has been for the sale of months into the second quarter.

I will admit Lamons.
We knew that out of the gate of the tonsil we'd have on originally, we thought it would be a hub services and access title on not an existing franchise from based on a sport that hasn't had a video game in place for many, many years. But actually out of the gate, is it interest stormed away is superb for us. Now we're expecting and understand that those sales did as we head into Limon. So we see that being the next peak and out of anything that drops off over time because we haven't been injecting the product with new content. But what we have been doing is injecting fixes and improvements and occasionally new features that really ramps up next month. So we expect the next spike and that's going to be critical for us in terms of marketing visibility, the player uptake numbers coming into the product and the general Vibe around that experience, that demand is going to be enormously beneficial to us, we expect.

And then my follow-up question, do do racing games to offer themselves to modifications by user content creators. I was just wondering if MOBs are an opportunity for it for for you in English?

Yes, yes, good question.
I'm not in the restaurant space for some titles. You can consider to be the lifeblood of Tyson's, but typically the titles that have been dormant for a while by leveraging the developers, they move onto the next shiny thing and filling in the pricing of stand-alone users tend to fill that gap. And there are a lot of talented people out there that need amazing content for legacy titles because we're so new there really isn't any I'm not content from them on ultimate. And that's not a path that we're proactively trying to encourage primarily because it's new, but also you've got to understand we have the R Factor two platform in our portfolio that has a lot of user-generated content, much of which gets sold through the steam stall or free modifications available elsewhere. And that's a fertile ground.
It's got a long history of this.
Newmont ultimate is built to be much cleaner, and I talked about the ecosystem, but really it's about the experience being much cleaner and a fresh for users because in our attitude that's been around for a long, long time, the quality can vary massively massively in terms of the user-generated content. And so on and it probably way positive sell by date to somebody uses. But the momentum, it is a shiny new thing that has a far higher kind of standard and we're really selling a premium product and the experience has to be first rate. And that means we curate that content and all that content right now comes from within on multiple games to catch up.

Well, good luck.

Thank you.

Thank you.

Operator

No further questions in the queue at this time. I will turn the program back over to Mr. Herbert for any additional remarks.

Thank you.
And I'd just like to close by I'm offering my thanks for everybody attending this call.
Much appreciated.
We are feeling very positive about what key one that we do see it as a stepping stone. And I'm glad to thank you again for your time.

Operator

This does conclude today's program. Thank you for your participation. You may disconnect at any time.
A wonderful day.